Fed: Now we expect first 2016 rate hike in September - Rabobank

Analysts from Rabobank continue to call for two rate hikes from the Federal Reserve during the current year, but moved the first hike from June to September.

Key Quotes:

“However, she (Janet Yellen) chose not to repeat this language (yesterday’s speech) and instead she showed a lot of concern about the weak Employment Report of last Friday. This suggests to us that ‘caution’ has taken over again and that it would probably take more than one good Employment Report to dispel the fears in the FOMC. After reaching a consensus on a possible June/July rate hike at the April meeting, the most recent Employment Report is likely to have put the doves – keep in mind that Yellen is dovish as well – back in their risk-off mode. Note that by the September meeting, we will also have seen the Employment Reports for July and August, in addition to the June report that will be available prior to the July meeting of the FOMC.”

“Still we do not rule out a July hike completely, although we think that this is less likely than a delay to September. Obviously, this would require an Employment Report for June that is strong enough to dispel the fears that the May report has caused, even the fears of the doves. However, as we have explained, this is not our baseline scenario.”

“We stick to our call for 2 hikes this year, but we now expect the first to take place in September instead of June. While we still see a distinct possibility for a July hike, we now believe that this is less likely than September. Finally, we still see a second hike in December.”